Research Highlights Featured Chart
April 18, 2018
Better banking?
Safekeeping is a critical but understudied function of bank accounts.
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The most basic function of a bank is safekeeping — simply having a place to put your money. Of course, access to this fundamental service does not mean that people will use it.
In a paper in the April issue of the American Economic Journal: Applied Economics, authors Pascaline Dupas, Dean Karlan, Jonathan Robinson, and Diego Ubfal help participants open simple, low-interest accounts in Uganda, Chile, and Malawi. By paying bank fees and assisting with paperwork, the authors remove many of the barriers to having and using these accounts.
Most people never use their accounts. For those who do use the accounts, participants deposit and withdraw at similar rates, and so account balances remain roughly the same. The figure below highlights results from Chile, but the same pattern occurs in each of the countries.
Figure 3 from Dupas et al. (2018)
The likely explanations are that most people never accumulate enough money to make deposits, or they live prohibitively far from their banks. For a small fraction of participants, the accounts are a useful way to keep their money safe. But, these participants also have frequent needs.
This study comes at a time when microfinance organizations and governments are looking to expand access to basic accounts, and so the main lesson is unfortunately relevant: although these accounts do serve some people, they may not have a broad enough impact to alleviate widespread poverty or even encourage saving among users.